Live Markets: European landlords: overly discounted?
29/08/2023 12:33
*
STOXX 600 up 0.6% to 2-week high
*
Miners, banks lead gainers
*
Wall St futures little changed
Welcome to the home for real-time coverage of markets brought to
you by Reuters reporters. You can share your thoughts with us at
EUROPEAN LANDLORDS: OVERLY DISCOUNTED? (1115 GMT)
European real estate .SX86P have been under big pressure
over the past 2 years, as rising rates have forced the highly
leveraged sector to turn its focus onto balance sheet repair
just as valuations kept falling and transactions dried up.
But, after the sectoral index hit its lowest on record
against the broader market .STOXX this year, some sell-side
analysts are starting to look past the worst. Take Goldman
Sachs, which sees opportunities among stocks that offer
particularly high valuation discounts.
"Our Buys largely focus on some Value stocks which we see as
overly discounted given the set of risks we see and our
expectations that leverage will be manageable," say Jonathan
Kownator, Head of European real estate equity research at GS.
Kownator and team are buy-rated on Covivio CVO.PA , Grand
City GYC.DE , Klepierre LOIM.PA , URW URW.PA and Vonovia
VNAn.DE . They all display a bigger valuation discount and
higher earnings yield than the average of their coverage.
"We expect the above Value stocks' performance to be
directly linked to the evolution of real rates and we note US
10Y TIPS peaked on 20 Oct 2022 and have been range-bound since.
We also expect positive earnings revisions and/or paced
disposals to be further catalysts," they add in a note today.
And GS is not alone. UBS is also bullish on a relative basis
and so is BofA Global Research, which is overweight. More
reading on the sector here in this graphic piece: Bounce in
European property stocks: false start or turning point?
(Danilo Masoni)
*****
MINERS RISK-REWARD IMPROVING - UBS (1031 GMT)
Mining shares have been, by a clear distance, Europe's worst
performing sector this year.
The STOXX 600 Basic Resources index .SXPP is down a
whopping 17% in 2023 and is one of only four major sectors that
is lower year-to-date.
UBS analysts think opportunities among the miners could soon
present themselves but has refrained from turning all-out
bullish on the sector.
"The risk vs reward for the miners is improving, but we
remain patient/selective," UBS analysts said in a note.
Within the sector, UBS are buyers of Glencore GLEN.L and
Lundin LUN.TO , while Norsk Hydro NHY.OL "has attractive
valuation at close to bottom-of-the-cycle prices".
The firm is also a buyer of Aurubis NAFG.DE and neutral on
Antofagasta ANTO.L and Boliden BOL.ST as the "risk vs reward
for copper is improving".
The Swiss bank, however, sees downside to iron ore and are
sellers of Rio Tinto RIO.L and BHP BHPB.L .
(Samuel Indyk)
*****
MORGAN STANLEY DEBUNKS JOB LOSSES DUE TO AI (0952 GMT)
"Simply because the same work can be done by fewer workers,
the result is not lower employment. History suggests we will
simply see more output," writes Seth B Carpenter, chief global
economist at Morgan Stanley.
Worries have been rising that with generative AI developing
as fast as it has been, jobs could be at risk. Goldman Sachs in
March estimated that two-thirds of current jobs in U.S. and
Europe could be automated by AI.
While some workers will be displaced by automation, higher
productivity makes each worker more profitable which should
increase the demand for labor over time, Carpenter says.
"A frequently overlooked factor is that new technology
creates new jobs, reinstating many workers," he says.
This echoes with a recent study from the International
Labour Organization, that concluded that most jobs and
industries are only partially exposed to automation and are thus
more likely to be complemented rather than substituted by AI.
Carpenter flags increased productivity due to AI could
eventually lead to a disinflationary impulse as companies will
be able to produce more at lower costs.
While this should first lead to lower policy rates, over
time, if productivity gains are large and sustained, policy
rates could rise, he says.
But stead of seeing higher real rates as a negative for
equities, faster productivity growth means that both earnings
and real rates can rise in tandem — a shift in a correlation
that many in markets have become used to, Carpenter says.
"The greater productivity is, the greater the incentive to
invest."
(Susan Mathew)
*****
CHINA-JAPAN SEAFOOD WARS: A DIFFERENT KETTLE OF FISH (0923
GMT)
Amid souring Sino-Japan relations following China's ban on
Japanese seafood imports over the release of radioactive water,
questions abound - could things get "fishy" from here?
China and Hong Kong SAR were the top two export markets of
Japanese marine products in 2022, researchers at Citigroup wrote
in a note, adding that the Fukushima discharge controversy could
bring in new uncertainties for Japanese firms operating in
China.
As China's fifth largest export destination, the sectors
exposed most to Japan could be subject to even higher risks of
potential restrictions, wrote Citi's Xiangrong Yu, Yuanliu Hu
and Xinyu Ji.
China's top products sold to Japan as of 2022 comprise
electrical equipment (23.4%), machinery (16.5%), apparel (4.5%),
plastics (3.7%), and furniture (3.6%). And as of May, Japan has
a large FDI stock in China - up to $148 billion in 2021 -
particularly in auto, machinery and electricals, and
pharmaceuticals.
Further, the recent nascent recovery in China's tourism from
Japan, as well as China's Japanese-food catering market - valued
at RMB 18.8 billion in 2022 - could be hampered.
If the situation were to escalate, the losses for the two
countries are likely to be major, with one possible winner:
Russia.
(Anisha Sircar)
*****
STOXX 600 HITS 2-WEEK HIGH (0737 GMT)
Europe's STOXX 600 index .STOXX hit a two-week high on
Tuesday, building on Monday's 0.9% gain, after Friday's speeches
from Fed Chair Powell and ECB President Lagarde did little to
alter expectations on the outlook for monetary policy.
"It's clear that markets have taken last week's speeches at
Jackson Hole in their stride," Deutsche Bank analysts say in a
note.
"It was quite a different tone to last year, when it was
abundantly clear that Powell's message was that the Fed wasn't
about to let-up on inflation," they say, noting that the S&P 500
.SPX plunged over 3% on the day of his remarks in 2022.
The pan-European benchmark is up 0.9%, while Germany's DAX
.GDAXI and France's CAC 40 .FCHI are up 0.6% and Britain's
FTSE .FTSE is up 1.7%, playing catch-up after missing out on
Monday's surge due to a market holiday.
All sectors are in the green, with real estate .SX86P and
basic resources .SXPP leading the way higher, while Dutch
insurer NN Group NN.AS is the top gainer after its first-half
results.
Here's your opening snapshot:
(Samuel Indyk)
*****
EUROPE'S BUOYANT MOOD SET TO CONTINUE (0628 GMT)
Europe's buoyant start to the week looks set to continue on
Tuesday, with equity futures signalling another positive open.
Euro STOXX 50 STXEc1 futures are up 0.4%, with gains on
futures on the DAX FDXc1 and CAC 40 FCEc1 both north of
0.3%.
Contracts on Britain's FTSE 100 FFIc1 are outperforming,
jumping over 1%, having missed out on Monday's European surge
due to a market holiday.
In corporate news, airlines could be in focus after a
technical problem on Monday caused widespread disruption to
flights in UK airspace, affecting IAG's British Airways
ICAG.L , Ryanair RYA.I and others.
(Samuel Indyk)
*****
STRIKES, SYSTEM FAILURES AND A SLOWDOWN (0554 GMT)
Workers at two Chevron CVX.N liquefied natural gas
facilities in Australia plan stoppages next week, putting
European gas traders on edge and sending prices higher amid
worries about potential supply interruptions.
Workers at Toyota plants in Japan were idle, meanwhile, as a
systems malfunction crippling component orders brought output to
a standstill for the world's top automaker.
That comes on the heels of tech woes at British air control
on Monday that disrupted flights. Coincidence?
Probably, but perhaps it has all fed into expectations that
economic data is going to come in soft for the rest of the week,
which had investors spending the Asia session buying bonds.
Two-year Treasury yields US2YT=RR dropped more than five
basis points - a decent move for Asia hours - to below 5% and
slightly narrowing the yield curve's inversion.
French and German confidence data is due later in the day,
followed by U.S. job openings, where a slight decrease might
point to a slowdown for broader labour figures that are due out
on Friday.
FTSE futures FFIc1 suggest a positive return from a day's
holiday in London, while U.S. and European futures were flat.
Japan's government said it may be at an inflection point in
its 25-year battle with deflation, though that scarcely lifted
the yen from Monday's 10-month low.
Japan's Nikkei .N225 touched a two-week top, while
Chinese stocks were also on the shopping list in Asia, with
foreigners turning buyers after Beijing signalled some interest
in steadying markets by halving stamp duty on share trading.
Hong Kong's Hang Seng .HIS was up 2% by mid-session and
mainland blue chips .CSI300 were up 1.5%. Both remain lower
for the year so far, as does the yuan, which has hardly caught a
boost as doubts about China's economic outlook remain heavy.
Trade tensions also lurk, with U.S. Commerce Secretary Gina
Raimondo meeting her Chinese counterpart to discuss restrictions
on chipmakers and chipmaking ingredients.
As the holiday season winds down, there are some signs it's
been a good one: Tourism Holdings THL.NZ , the world's biggest
campervan rental company, posted a record underlying profit and
its shares had their best trading sessions since the pandemic,
jumping 15%.
Key developments that could influence markets on Tuesday:
Data: German and French consumer sentiment, U.S. home
prices, job openings
Earnings: Hewlett Packard, Best Buy
(Tom Westbrook)
*****
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
US yield curve https://tmsnrt.rs/3QWhiiE
EU Stocks 290823 https://tmsnrt.rs/3YSLBJ8
Japan China seafood trade https://tmsnrt.rs/47Pv7W9
Real estate discount https://tmsnrt.rs/3qPmt9p
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>